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GRAND RAPIDS — The city gave Brookstone Capital LLC its conditional approval for a property-tax exemption in exchange for a payment in lieu of taxes program last week, as the Midland-based firm will try to turn the 123-year-old Watson & Heald building at 101 S. Division Ave. into a successful mixed-use development.

The exemption would last for 15 years. Instead of paying property taxes over that period, Brookstone Capital would be required to pay the city 4 percent of the annual rental income the company would get from the 21 apartments it plans to build on the top two floors of the three-story structure.

The building's ground floor commercial space, about 4,700 square feet, would remain on the property-tax roll.

Brookstone Capital Principal Karl Chew said his firm plans to invest nearly $6.2 million into converting the vacant structure into low-income housing. Chew plans to build 13 one-bedroom units of 600 square feet each and eight two-bedroom units of 900 square feet each on the upper levels. Monthly rents would be $697 for a one-bedroom apartment and $837 for a two-bedroom.

But to make the project work, Brookstone Capital needs nearly $4 million in low-income housing tax credits from the Michigan State Housing Development Authority, which holds a lottery to award the credits. Chew said the remainder of the project's financing would come from a conventional loan, brownfield tax credits, and historic renovation tax credits.

About $500,000 of the total investment would go into the building's commercial space.

Two other firms tried to develop the Watson & Heald into market-rate housing, but were unsuccessful.

"It was not feasible to use that property for market-rate (housing)," said Connie Bohatch, community development director for the city.

Brookstone Capital built the Metropolitan Park Apartments, a 24-unit complex at 350 Ionia Ave. SW, and received housing tax credits from the state for that project.

At one time, the city owned the Watson & Heald. The city took possession of the building about six years ago and made improvements to the structure. The city tried to auction it off but couldn't, and eventually sold it to Bantam Capital Investments — which sold the building to Brookstone Capital in July.

"We got all of our money out of it," said City Attorney Philip Balkema, "and a little bit more."

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